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A Default Position for Greek CDS

By

Richard Barley

February 27, 2012

For months, European policy makers railed against triggering credit-default swaps, or CDS, on Greek debt. Politicians have denounced the CDS market as a speculative vehicle exacerbating the crisis, although regulators have found no evidence of that being the case. But the voluntary Greek bond swap may yet end up triggering CDS—and that may be no bad thing.

On Friday, Greece formally asked bondholders to write off more than half of their holdings. The country has passed legislation to insert so-called collective-action clauses...